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A Vehicle Service Contract (VSC) is an automotive protection plan that covers the cost of certain repairs and breakdowns in exchange for an upfront or monthly fee. Unlike auto insurance, which covers damage from accidents, a VSC helps pay for mechanical failures and unexpected repairs, giving car owners peace of mind.
While individual drivers often purchase a VSC for their own vehicle, fleet operators also use these contracts to protect multiple vehicles under their management. The terms of a VSC outline which repairs are covered and under what conditions, helping consumers avoid costly out-of-pocket expenses when unexpected breakdowns occur.
Understanding the difference between a Vehicle Service Contract and auto insurance is key. Insurance primarily covers accident-related damage, while a VSC steps in when a vehicle experiences a mechanical failure unrelated to a collision. For many drivers, having both types of coverage provides the best financial protection against unforeseen car expenses.
That being said, it is of the utmost importance that you understand what vehicle service contracts are (and what they are not), so that you can make an informed decision. Without further ado, let’s dive in.
Vehicle Service Contracts vs Extended Warranties
Believe it or not, there is actually no such thing as an “extended warranty” for a car, truck, or SUV that comes from a third party (not the manufacturer or the dealer). Let’s take a closer look at this common misconception.
The term “extended warranty” is used colloquially by third party companies, but technically it does not exist. A warranty is something that comes with the purchase or lease of the vehicle. It can be given by the manufacturer (most typically) or the dealer, but it is an incident of the sale. Warranties are express (the vehicle conforms to a written statement like this vehicle has a new transmission) or implied (warranty of merchantability or fitness for a particular purpose such as if the dealer knows the customer will use it for commuting).
If a customer pays for extended coverage, that is a vehicle service contract. Under the Magnuson Moss Act, if a dealer sells a vehicle service contract to the customer within 90 days of sale, the dealer cannot disclaim implied warranties. Nevertheless, the term “extended warranty” is sometimes used incorrectly to refer to a vehicle service contract.
Of course, vehicles can (and do) have warranties. Those warranties most commonly come from manufacturers. For example, Kia offers a 10-year/100,000 mile limited powertrain warranty on new vehicles. If you’re then being sold an “extended powertrain warranty,” look at the fine print to confirm it is coming from either the dealer or the manufacturer.
If it is a third party, know that they are not selling you an extended powertrain warranty, they are selling you an extended service contract that covers the vehicle’s powertrain. There is a difference between the two. You’ll know it’s a third party if the name on the contract isn’t the dealership’s or the manufacturer’s company name.
Types of VSC Coverage
Typically, when we talk about coverage, we talk about two things: stated coverage and exclusionary coverage. Stated coverage refers to a policy where the covered items are explicitly listed in the contract. If it is not stated as “included” then it is not covered. Exclusionary coverage is broader, and therefore offers better protection for the consumer. If a part is not specifically listed as excluded, then the contract provider has to pay the claim for the part. This type of coverage is the best because it protects your vehicle in all but a small selection of circumstances.
Are Vehicle Service Contracts Worth It?
Now that we know the difference between a vehicle service contract and an extended warranty, the question is, are vehicle service contracts worth it? To answer this question we need to talk about VSC coverage for new and used vehicles.
Vehicle service contracts for new vehicles
Are vehicle service contracts worth it for new vehicles? In summary, it depends on your risk tolerance.
Any vehicle service contract you are offered is inclusive of manufacturer warranties. What does this mean? This means that a vehicle service contract does not replace, nor extend a manufacturer’s existing warranty on a vehicle.
With that in mind, why then would you buy a VSC, if the manufacturer warranty is already in place? There are two reasons:
The VSC will cover other things outside the scope of the manufacturer’s warranty; and
VSCs for new vehicles are generally very cheap.
Let’s unpack both of these two reasons why you should consider getting a VSC on a new car.
First, it’s important to understand that many administrators offer perks with their service contracts to make them more appealing to new car owners. For example, trip interruption coverage, rental car reimbursement, and 24/7 roadside assistance are all included in CarEdge’s vehicle service contract. These are perks that are typically not included in a manufacturer’s warranty.
Generally, new car vehicle service contracts are much more affordable. Unfortunately, for consumers, most dealers add incredible mark up to these products, so you’d be hard pressed to consider them “cheap” when you’re sitting in the finance and insurance office at the dealership, but CarEdge is proud to offer the best Vehicle Service Contract pricing.
At the end of the day, if you’re able to negotiate a fair price on a VSC for a new car, it can most certainly be worth it. Purchasing coverage for your new car is entirely up to you and your risk tolerance. And, as always, read the contract before you sign!
Vehicle service contracts for used vehicles
Similar to new cars, service contracts for used vehicles are priced according to how much risk the plan administrator is taking on. That being said, service contracts for used vehicles are the same “value” as they would be for a new vehicle.
It is important to understand that if the used vehicle you are purchasing has existing manufacturer warranties in place (for example the vehicle you are buying has 25,000 miles on it, and the manufacturer warranty cover up to 36,000 miles), then the vehicle service contract is inclusive of that existing warranty (just like what we discussed above with regards to new cars). For clarity, this means that the service contract does not extend the manufacturer’s warranty, instead it exists in conjunction with the manufacturer’s warranty.
It is very important that you read the contract carefully before purchasing a vehicle service contract. In the contract you will see what repairs the administrator excludes. The last thing you want to do is sign up for a service contract, only to go to the repair shop one day and have to foot the bill because what broke wasn’t covered.
Peace of Mind Is Just a Click Away
When deciding whether a VSC is worth it, consider your risk tolerance, vehicle reliability, and budget for unexpected repairs. For new cars, an affordable service contract can be a smart way to add extra perks like roadside assistance, trip reimbursement, and rental car reimbursement. For used cars, a VSC can provide financial protection against costly repairs, but it’s essential to read the contract carefully to understand what’s covered.
At CarEdge, we believe in transparency — no inflated dealership markups, just fair pricing for coverage that can give you peace of mind. Get your vehicle service contract quote in minutes, and rest assured with CarEdge!
As if buying a car wasn’t hard enough, purchasing add-ons like an extended warranty can be even more frustrating and irritating for car shoppers. For starters, what if I told you that the phrase “extended warranty”, is frequently used in an intentionally misleading way to profit off car buyers? We are talking about the car business, so maybe it’s easier to believe because of that, but the truth is, nine times out of ten, when someone is talking to you about an extended warranty they’re using the entirely wrong phrase.
Why then do you see commercials for extended warranties, get letters telling you that you should purchase an extended warranty, or receive phone calls telling you that your car is out of warranty and that you should buy an extended warranty RIGHT NOW? Because capitalism, that’s why.
Selling extended warranties is a lucrative business, even if in most cases it is a made up word that doesn’t actually exist. Many companies have found great success in the tactics described above (essentially fear marketing), and for better or worse, the term “extended warranty” isn’t going away anytime soon.
All that being said, we strongly suggest that you read or guide to vehicle service contracts. Most extended warranties are actually just vehicle service contracts. More on that below.
If you’re dead set on learning about extended warranties, then have no fear. We’ve taken most of our guide on vehicle service contracts and adapted it for this page. The reality is, more car buyers search for “extended warranty” than they do for “vehicle service contract” so it’s important we cover both topics (even though in most cases they are the same thing).
Without further ado, let’s dive in.
What is a car extended warranty?
So what actually is an extended warranty on a car? First you need to understand that a warranty is something that comes with the purchase or lease of a vehicle. It can be given by the manufacturer (most typically) or the car dealer, but it is an incident of the sale. Third parties cannot issue warranties for goods they did not produce or sell directly.
An extended warranty on a car, truck, or SUV that is sold by a third party is actually a vehicle service contract. An extended warranty sold by a seller (dealer), or manufacturer is an extended warranty.
The Magnuson–Moss Warranty Act of 1975 was enacted to fix problems as a result of sellers using disclaimers on warranties in an unfair or misleading manner. The unfortunate reality is that sellers are still using the term warranty in a misleading way.
Here’s a great example of this in practice. Go to PenFed Credit Union and you’ll see they sell “extended warranties”.
The moment you click on one of the sample contracts you quickly realize it is for a vehicle service contract.
What’s the difference between the two? Quite a bit!
Warranties are express (the vehicle conforms to a written statement like this vehicle has a new transmission) or implied (warranty of merchantability or fitness for a particular purpose such as if the dealer knows the customer will use it for commuting).
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If a customer pays for extended coverage, that is a vehicle service contract. Under Magnuson Moss, if a dealer sells a vehicle service contract to the customer within 90 days of sale, the dealer cannot disclaim implied warranties. In approximately 38 states, a dealer can otherwise disclaim express and implied warranties. It does so on the Used Car Buyers Guide and in the RISC or lease agreement.
All that being said, the term “extended warranty” is frequently used incorrectly to refer to a vehicle service contract. Extended warranties on vehicles can only be administered from the manufacturer or the dealer. For example, CarMax offers a 90 day or 4,000 mile limited warranty, and then prolonged vehicle service contracts through their third party administrators.
If you are purchasing a vehicle from your local dealer and they offer an extended warranty, it is up to you to do your due diligence and check who the administrator is of that warranty. Is it the dealer (unlikely)? If so, then it’s an extended warranty. Is it a third party administrator (likely), then it’s a vehicle service contract.
Why is it important that you understand the difference between an extended warranty and a vehicle service contract? Because some unscrupulous people will try and sell you an extended warranty that leads you to believe your existing warranty is “extended” thanks to the warranty you just purchased. This is not the case! Extended warranties administered through a third party (aka a vehicle service contract) do not extend your current warranty (crazy right?). Instead, they are inclusive of existing warranties on a vehicle. This means it will run in parallel with the manufacturer warranty and does not “extend” the warranty of the vehicle. It is critically important that you confirm who is actually administering the “warranty” to know if it is actually extending your coverage, or if it’s simply a vehicle service contract.
Maybe congress should pass another law that makes it illegal for companies to call themselves “Route 66 Warranty” when they really sell vehicle service contracts, but that can be for another blog post!
Should I buy an extended warranty for a car?
Okay, now that we understand what an extended warranty for a car is (and isn’t), the question is “should I buy one?” There are a few factors that go into answering this question. The TLDR is; you have to assess your risk tolerance and decide for yourself if an extended warranty is a good value or not.
One of the first things you need to understand about extended warranties for cars is that they are priced dynamically. Similar to other insurance products (think auto insurance for example), extended warranty pricing is different based on each and every vehicle identification number (VIN), and the current mileage of the car. That is to say that no two vehicles have the exact same price quote. An extended warranty on a Ford F-150 will be different then a BMW 3 series. Depending on the year, make, model, trim, and mileage, each extended warranty will be quoted from an administrator (like a Route 66 warranty, or even the manufacturer who is actually selling a legitimate extended warranty and not a vehicle service contract) with a different wholesale price.
Pricing for extended vehicle warranties is dynamic because the administrator is monetizing the risk associated with covering the costs of certain repairs to that vehicle. If you’re buying a brand new Toyota Camry that is covered by the manufacturer’s warranty, you can expect the wholesale price of a vehicle service contract to be very low. Toyota is an economy brand, and the parts needed to repair it are relatively inexpensive. Being new and under the manufacturer’s warranty means that the third party vehicle service contract most likely won’t end up with any claims against it.
Compare that to a used Mercedes-Benz E-Class sedan with 70,000 miles on it. The wholesale price for this VIN will be MUCH greater than the same extended warranty on the Camry. Why? Because the administrator is taking on a lot more financial risk. To make up for this, they sell the vehicle service contract at a much higher wholesale price.
At the end of the day, extended warranty companies are going to make their money. They know for each VIN in existence what the price is they need to offer to cover their risk and still make a profit.
What does that mean for you? It goes back to our TLDR. If you have a high risk tolerance, don’t bother with a vehicle service contract or an extended warranty. If you value the comfort of knowing things will be “covered” (although it is important to understand that there are a lot of exceptions in manufacturer, dealer, and third party contracts), then consider purchasing an extended warranty or vehicle service contract.
How much does an extended warranty cost?
Now that we understand how an extended warranty for a car is priced on the wholesale side of things, we can begin to unpack what happens on the retail side. Traditionally third party extended warranties are sold to “agents,” who then turn around and sell the products to car dealerships.
If you’re keeping up at home, that means the administrator sells the extended warranty to the agent, then the agent sells the extended warranty to the dealer, and then the dealer sells the extended warranty to you, the car buyer. I don’t know about you, but that’s a lot of hands involved in one transaction.
How much does an extended warranty cost when you go to buy one? Well, that depends on how much mark up each person in the supply chain added on to the extended warranty before it gets to you. Agents need to make their money, so they’ll mark up the extended warranty 10 to 20% when they sell it to a dealer. Dealers need to make their money, and since they don’t make it by selling cars, they try and make up for that when they sell products like extended warranties. They typically mark up extended warranties 200 to 300%.
What does that mean for you? Well, an extended warranty that may have cost the agent $500 to buy wholesale will be offered to you for more than $2,000 at the dealership.
Now if you are actually buying an extended warranty from the manufacturer, and not a vehicle service contract disguised as an extended warranty, the pricing will certainly be similar. Remember, extended warranties can only be provided by the manufacturer or the dealer. Most dealerships do not offer their own warranties, and instead they rely on third party products (like vehicle service contracts that we’ve been discussing). However most manufacturers do offer some extended warranty plans.
For example, if you purchase a certified pre-owned vehicle it will typically come with an extended warranty. This actually is an extended warranty because it is coming from the manufacturer. You may also have the opportunity to purchase an extended warranty directly from the manufacturer, again that is a real extended warranty. The cost for these warranties is different for each and every manufacturer, and it is unknown what the markup is. However, just like with third party warranties, manufacturers price their extended warranties dynamically to make sure they are charging enough to make a profit.
Extended warranty companies
Many third party companies claim to sell extended warranties. As we’ve discussed, they actually sell vehicle service contracts. Be weary of any company that markets themselves as a warranty provider when in reality they are selling vehicle service contracts. That being said, there are dozens of third party administrators you can purchase from.
Can I buy an extended warranty directly from the manufacturer?
Yes! This is literally one of the only ways you can purchase an extended warranty. Manufacturers of goods are able to sell extended warranties on their products. You don’t even have to deal with the local car dealer to secure a manufacturer extended warranty. You can call the manufacturer directly and purchase a policy.
I want to learn more about extended warranties
I don’t blame you! It’s fascinating how this part of the automotive industry works, isn’t it? Here are the resources I used to help gain a better understanding of how the extended warranty industry operates.
Costco is one of the largest membership clubs in the world. With an estimated 100 million members worldwide, there are certainly some great perks to being a part of the wholesale club. Beyond bulk groceries and home-goods, Costco offers their members access to the Costco Auto Program to assist them with one of the most daunting tasks they face; buying a new car.
The Costco Auto Program serves hundreds of thousands of car buyers each year, and today we thought we would take some time to break down how the program works, if it’s a good value, how dealers are compensated, and more.
If you’re more interested in watching, be sure to click “play” on the video above. Without further ado, let’s dive in!
How does the Costco Auto Program work?
Let’s start by being brutally honest about what the Costco Auto Program is … It’s a lead generation service for participating car dealers. Not too dissimilar from services like TrueCar, Costco’s auto buying program has a network of participating car dealerships that pay a monthly fee to get access to leads from Costco. The program is actually not run by Costco at all, instead it is operated by Affinity Auto Programs, Inc, a company that specializes in creating buying experiences for different brands (i.e. Navy Federal Credit Union, and Costco, etc.).
In return for paying to be a part of the program, these dealers gain access to the leads that Costco is able to generate from their millions of members.
At its core, the Costco Auto Buying Program is a matchmaking service that dealers pay to get access to. Plainly, if you’re looking for the best possible car deal, you shouldn’t expect it from the Costco Auto Program.
Does the Costco Auto Program work for new and used cars?
Yes, the Costco Auto Buying Program supports both new and used vehicles. As a shopper you can use the online portal created by Affinity Auto Programs, Inc. to search for new or used inventory in your area. Once you have found something you are interested in you can then submit your lead and Costco will “handle the rest for you.”
Is the Costco Auto Program a good deal?
You get time savings and reduced headache because the prices are not negotiable, but you also are limited to the dealers that are in the program’s network. When using the Costco Auto Program there is certainly a tradeoff in selection and price.
Since vehicles in the Costco Auto Program are not negotiable, you won’t have a chance to get further discounts on a car, truck, or SUV, even if the dealer would be willing to go lower. For some, that’s a-okay, because they simply want a car buying experience that doesn’t include haggling or negotiating. However if that’s the case, I’d recommend you go to a one price car dealership in your area that is not a part of the Costco Auto Buying Program and see what price they are able to quote you. They may be able to go lower since they are not paying a monthly fee to be a part of the Costco program.
How we like to use the Costco Auto Program
Getting a price quote from a dealership via the Costco Auto Program is easy. What we recommend you do is you get the price quote from a participating dealer, then take that price to a dealer that is not in the program and tell them you’ll pay $500 less. The dealer will take your offer, and you just saved an extra $500. It’s really that simple.
Costco Auto savings are different then the Auto Buying Program
Unlike the Costco Auto Buying Program, where you must purchase your vehicle from a participating dealer, Costco Auto Savings are applicable to any Costco member regardless of where they shop.
As of the time of writing this, Costco has $1,000 savings incentives for their members at Buick, Chevrolet, GMC, and Volvo dealerships. If you are a Costco member this means that those dealerships will happily provide you with the incentive that Costco is offering. The incentive doesn’t come out of their pocket, so they will be happy to apply it to your deal, just ask.
Just because the selling price of the vehicle is not negotiable doesn’t mean you shouldn’t negotiate on ancillary products. Extended warranties, tire and wheel protection, GAP insurance, etc, etc. All of those things should still be negotiated.
Simple because the vehicle was not negotiable does not mean that the dealership will not try to make a pretty penny in the back office selling financing and insurance products. If you want to finance through the dealer or buy warranties that’s a-okay, just know that if it’s taxable, it’s negotiable.
Pros: Here’s what I like about Costco Auto Program
Ease of mind. You know what you are getting with the Costco Auto Program, and when it comes to buying a car, that usually isn’t the case.
Savings for Costco members can be applied regardless of if you use the program to buy your car or not. We love that Costco specific savings can be applied regardless of where you buy your vehicle (through their program or not). Be sure to take advantage of these savings if you’re a Costco member.
They’re honest. Costco isn’t hiding what their program is, you can read about it right on their website. I like the fact that they are open and honest about what the Costco Auto Buying Program is, and what it isn’t.
Cons: Here’s what I dislike about Costco Auto Program
Limited selection. If you are dead set on purchasing your next vehicle through the Costco Auto Program you have to understand that you may not find the exact vehicle you are looking for from one of the participating car dealerships.
Not the best price. As we discussed above, the Costco Auto Program does not guarantee you the best possible car deal.
A lot of emails from participating dealers. When you become a “lead” through the Costco Auto Program you will inevitably receive a lot of emails from participating car dealers.
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Buying a car shouldn’t be so damn hard. Since the pandemic, more and more car dealerships have started offering ways for you to buy a car online. That being said, negotiating a fair car deal is (in some ways) easier than ever before.
To buy a car online you need to be prepared to contact multiple car dealers via email. We wrote an entire guide on this process. The purpose of this page is not to talk strategy, but rather to be a repository of email templates you can copy and paste while you buy a car online.
Please comment below if you have an email template request and we’ll add it to this page. Our hope is that you can copy and paste these email templates so that your online car buying experience is easier, less stressful, and potentially even fun (we said potentially).
Email Requesting the Best out the Door Price Quote
Hello,
My name is (your name), and I live in your area. My zip code is (Put in your zip code), and I am looking to purchase the following:
2020 Subaru Outback with the Premium package, no sunroof and a dark interior. (Be sure to put in the details of the vehicle, and specify a stock # if you have an exact vehicle in mind. Also check how long the vehicle has been in the dealership’s inventory.)
I noticed that this vehicle has been sitting for (put in the number of days it has been on the lot) and I would be happy to get this vehicle off your lot if the price was aggressive.
I have already arranged for my own financing but I might be open to what financing options you offer. I would even entertain a pre-owned or retired service loaner if it would offer the appropriate savings. (Remove if not applicable) I am looking to take delivery by month end at the latest. I am prepared to move sooner if the deal warrants it.
Kindly provide me with your best detailed out-the-door price breakdown including dealer discounted selling price, less any manufacturer rebates, plus dealer and government fees. I will be contacting several dealers within a (enter a reasonable number, like 75 or 100) mile radius. I am a serious and committed buyer, ready to move forward with my purchase, provided that you supply me with the details that I have requested.
Thanks so much, and I look forward to hearing back from you.
All the best, YOUR NAME
Email For When the Dealer Says “The Price is The Price”
Hello,
Thanks so much for getting back to me, I greatly appreciate it.
I understand that the price for the vehicle that I am interested in is non-negotiable, but I do have one question for you. I am assuming that your store, like most dealerships, has an aging policy for both new and used cars, correct?
If so, how often do you review your pricing, weekly, every 10 days or so? When you determine that your price needs to be adjusted downward, what would that price reduction look like, $500 less, $750 less, maybe even $1,000 less?
I’m sure that turning inventory quickly is important to you, especially considering the cost of flooring your inventory in today’s high interest rate environment.
Pick a price reduction, let me know what it is, and I’ll come and buy the car today. Please let me know what number works for you.
Thanks again for all of your help, patience, and understanding.
I’ll await your reply,
YOUR NAME
Email Asking If a Car Is Still Available
This email should be sent to the sales department as a general inquiry, or to the internet department if a dealership has one. You can typically find the email address for these departments on the dealership’s website.
Hello,
The reason for this email is to confirm the availability of stock number (list the stock number that you are interested in) as listed on your dealership website. I realize that your inventory situation is fluid because of the number of sales that your store produces daily and that vehicle availability can change quickly. With that being said, is (stock number) still available?
Please let me know one way or the other so that I can plan my next step.
Thanks so much for your help. I look forward to hearing back from you soon.
I look forward to hearing back from you soon.
YOUR NAME
Email Asking For a Lease Quote
Hello,
My name is (your name), and I live in your area. My zip code is (Put in your zip code), and I am looking to lease the following:
2020 Subaru Outback with the Premium package, no sunroof and a dark interior. (Be sure to put in the details of the vehicle, and specify a stock # if you have an exact vehicle in mind). I noticed that this vehicle has been sitting for (put in the number of days it has been on the lot) and I would be happy to get this vehicle off your lot if the lease payment was aggressive.
I need a 36 month, 15,000 mile per year lease (replace with the lease details you need) and I only want to put the first payment down at signing. My credit score is (your credit score here). I am looking to take delivery by month end at the latest. I would move sooner if the deal warrants it.
Please provide me with a breakdown of all lease terms, including dealer discounted selling price, less and manufacturer customer rebates, residual value percentages, and money factor plus all dealer and government fees. I will be contacting several dealers within a (enter a reasonable number, like 75 or 100) mile radius. I am a serious committed buyer, ready to move forward with my lease, provided that you supply me with the details that I have requested.
Thanks so much, and I look forward to hearing back from you.
YOUR NAME
Email To Factory Order a New Car
Hello,
My name is (your name), and I live in your area. My zip code is (Put in your zip code), and I am looking to place a factory order.
I know exactly what I want, and I am not willing to settle for a vehicle that does not match what I am looking for. Because of this I think that it would be best to factory order my next vehicle. With that in mind, what is the expected time frame from order to delivery? How much deposit do you require to order the car?
I will agree to take delivery of my new vehicle within 72 hours after it’s arrival. This means your floor plan cost will be minimal at best. I will agree to pay the invoice amount, less any incentives available at that time, plus fees. You will collect the holdback and floor plan assistance as your profit. I trust that you would find this acceptable. If not, how close to the invoice can you get? Please let me know as I am contacting several dealers within a (enter a reasonable number, like 75 or 100) mile radius to see who is willing to make this happen. My preference would be to buy from you.
Thanks so much, and I look forward to hearing back from you.
YOUR NAME
Email for the General Manager or Dealer Principal
Hello,
A couple of days ago I requested information from your store regarding an out-the-door price for a vehicle I am interested in buying before the end of the month. The response I received from your staff was less than I had hoped for. I’ll attach the original email chain for your review at the bottom of this email.
I understand that the car business is very competitive, and I also recognize your fear that if you provide me with the information that I requested, I could run to your competitor and ask them to beat your price. That could happen, but it doesn’t have to. I realize that there is more to building a relationship than just price. Is price important? Yes but not necessarily the ultimate deciding factor.
You could share with me any number of reasons why I would be better off buying from you. You could tell me about your complimentary car washes after any service, you could review with me the comfort of your customer waiting area, or any awards that the dealership has received, or better yet, how you support our local community via sponsorships and charitable contributions. There is so much for you to share beyond just what I asked for that can and will factor into my decision!
So, hopefully you will embrace this as the opportunity to add a new member to your family of customers. To create a fan of your dealership who will direct others your way.
I look forward to hearing back from you soon.
YOUR NAME
Attach email chain from initial email and responses here
Email Response for When The Dealer Doesn’t Provide the Info You Requested
Hello,
A couple of days ago I requested some information from you regarding an out the door price for the vehicle that I am interested in buying before month end and your response was to ignore my request, and to instead invite me to come in for a test drive. You assured me that your boss would be more than happy to work with me once I come in.
I get it, you have been trained to take control, to set an appointment, to bring the customer in before you can give them anything. Your boss beats that into your head everyday, “Every! Damn! Day!” So I get it. But it is a new world out there, and you either learn how to adapt or you perish. I’m hoping that you can adapt and that you can attain even greater success.
Normally, you have but one opportunity to make a good first impression, however I’ll give you a second chance. All I’m asking for is the information that I requested. Provided that you actually include the information, the possibility of a sale exists. If you choose not to, then I can assure you there will be no sale. Potential sale or no sale, the outcome rests entirely on your response.
I’m betting that you could always use one more sale this month to hit your goal and well, with your help, I would like to be that sale.
I look forward to hearing back from you soon.
YOUR NAME
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As if buying a car wasn’t tricky enough, the equation becomes even more complex when the topic of your trade-in comes into play. If you’re like one of the millions of car buyers each year that trades-in their car at the time of purchase, you’re most likely wondering, “when do I bring up the trade-in during the negotiation process so that I get the best deal?”
Well, fortunately for you, we’re going to discuss when to bring up your trade-in (and more) today. If you’re less interested in reading about how to navigate your trade-in, you can watch the YouTube video above. If you prefer to read, then continue on below, over the next few minutes we’ll explain exactly how to approach your trade-in during the car buying process.
Without further ado, let’s dive in!
They’re two separate transactions
First and foremost you need to recognize that buying a car and trading-in a car are two separate transactions, and each should be treated as such. Negotiating a car purchase, and selling your existing vehicle are independent of each other, however dealers will diligently try to combine the two into one “deal.” Why? Because when you’re working two transactions at once there are more opportunities to generate profits (if you’re a dealer), and lose focus (if you’re the consumer).
Why should you approach the trade-in process and the negotiation of a vehicle purchase as two separate events? It’s simple, by focusing on selling your car for the greatest amount of money possible, you’ll sell your car for more, and by focusing on negotiating the best possible out-the-door price on the vehicle you’re purchasing, you’ll get the best deal possible. Attempting to combine the two simply muddies the waters and allows the dealer the opportunity to “pull a fast one” on you.
Negotiate the out-the-door price
Since your purchase and your trade-in are two separate transactions, you should turn your focus to negotiating the best possible out-the-door price. If you’re unfamiliar with the term “out-the-door price” then I highly suggest you read our guide here, or listen to this podcast episode on out-the-door price (or watch the video above). We created a 100% free out-the-door price calculator that you can access at any time as well to get an estimate for what the OTD price will be on any car you’re interested in.
To negotiate the best out-the-door price you’ll want to follow all of the best practices in the resources above, as well as what we outline in Deal School. For example, if you know how long a vehicle has been on a dealer’s lot, what the local market days supply is, and more, you’ll be able to negotiate a better out-the-door price.
Once you have agreed to terms with the dealer on the vehicle’s total price, you should then transition the conversation to your trade-in, and here’s how to approach that …
Get multiple quotes on your trade-in
My recommendation is simple: get as many competitive quotes for your trade-in as possible before engaging with the dealer. For example, you should get a quote from CarEdge, and any other applicable major used car dealers in your area before discussing your trade-in with the dealer you are going to buy the car from.
It is important to understand that most car dealers will lowball you on their initial trade-in offer. This should come as no surprise. Dealerships are incentivized to purchase your vehicle for as little as possible so that when they sell it to another car buyer they maximize their profit. Your objective is the opposite. You want the greatest amount possible when you sell your vehicle, and the only way you’ll get that is if you get multiple quotes from a handful of dealers in your area.
Another option worth considering is also selling your car to a private party, however if you’re objective is to trade-in the vehicle (and there are financial reasons why you’d want to do this), then getting offers from private parties won’t really help your cause. The point of getting multiple quotes from other dealers is to have leverage with the dealer where you are purchasing your new vehicle, and a verbal offer from a private party isn’t much of a negotiating chip.
Once you have these quotes you can move on to the next phase of the negotiation process.
Vehicle trade-in sales tax benefit
At this point it’s clear that the trade-in of your existing vehicle, and the negotiation of the new vehicle you are purchasing are two separate events. First you should negotiate a fair out-the-door price, and then bring up competitive quotes from other dealers to purchase your car.
Now, let’s say the dealer makes a compelling offer, but they don’t match the highest offer you’ve received from another dealer. What do you do? Which offer do you take? You need to understand the sales tax benefit of trading a car in versus selling it.
The trade-in sales tax benefit is different in each state, so please double-check with your local tax codes before signing any documents, however in the state of California, the District of Columbia, Hawaii, Kentucky, Michigan, Montana, Oregon, and Virginia there is no sales-tax benefit from trading in your vehicle.
Update for 2022: In Michigan, you can reduce the taxable value of your new car by up to $8,000 and reduce your sales tax by up to $480.
Update for 2022: In Arkansas you can sell your vehicle private party and still retain a sales tax basis benefit.
This means that if you trade-in your vehicle you will not receive any sales tax credit applied to the purchase of your next vehicle. In all other states (again double-check with your local tax codes) you receive a sales tax credit applied to the price of the new vehicle you are purchasing.
For example:
You’re purchasing a $20,000 vehicle
The sales tax is 10 percent in your state
Your total sales tax would be $2,000
You’re trading in your current car for $12,000
The new basis for the sales tax on your purchase is decreased by $12,000
You now only pay $800 in sales tax on your purchase
In this scenario it would make more sense to trade-in your vehicle so long as the dealer is offering you an amount that is within $1,200 of your highest direct-sale offer.
CarEdge Insights
